McDonald’s ($MCD) announced today (9/17/18) that they are going to increase their quarterly dividend to $1.11, up $.10 from $1.01. This seems to be Ronald McDonald grasping for every straw to keep the stock price at a decent level.


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McDonalds is trading ~11% below their 52-week high, and roughly ~7% above its 52-week low. While some may take this as a trend back towards growth, there are several factors at play that investors should be cautious of. Factors include:

  • 3.7% sales decline over 5 trailing 5 years
  • 11.5% sales decline in just the past quarter
  • -6.55% performance of the stock Year To Date
  • Stores and operators are plagued by discounts
  • Increasing staff costs

How McDonalds can do a McTurnaround

One of biggest costs for any business is labor, and with significant increases in minimum wages, and the high number of bodies needed to process the order volume that McDonalds does, that number adds up quick. The $15 minimum wage will see a significantly higher staffing cost, and if McDonald’s isnt poised to offset or replace workers with technology, you could see quite a big dip in revenue.

Franchises have already started to cut front of house staff and replace them with order kiosks, capable of providing all the nutrition information, visuals for all menu items, and multiple forms of payment processing all in one neat little box. This should help streamline operations, but might not be enough.

Following Sonics lead

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McDonalds has been slowly adapting new models to help increase same store sales, such as order ahead with curbside pickup, and a partnership with UberEats. These might help, but long term effects still remain to be seen. Sonic ($SONC) on the other hand, has seen 55% growth for the year, and is just 7% shy of its 52-week high. Sonic has adopted a mobile and text messaging first marketing campaign, driving traffic and same store sales up through the use of drink “happy hours” and regular loss leaders to increase store traffic.

Feeling McBearish on McDonalds

When analyzing the stock, looking at a 5 year Discounted Cash Flow Growth Exit, $MCD shows an almost 42% downside. Shorting $MCD is an option, and with a $93 price target, could make you significant money.

Buying 17 JAN 2020 $95 PUT options would see your entry price of $1.01. Ten contracts would cost $1,010, and breakevens at expiry would be $94. If the stock price tanks (like it has been trending towards), and hits $96 by 28 NOV 2019, we would see the value of the position of $3,750, and a total profit of $2,650 on the trade. Total return would be in the neighborhood of 250% return on investment (253% to be exact).

Looks like it might be time to McDouble down on some Put Options.


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1 COMMENT

  1. Mc Donald’s was one of those stocks I would’ve bought 3 yrs ago if I had enough earn income coming in along with Boeing, also AAPL being, if I didn’t need to go threw a broker to acquire that one.
    I can see I’m far from being ready to actually be trying to trade stocks with real money, I’ll be trying with in the next yr or two, working to buy cheap S&P Index fund if everything works out good. I was starting to be concern about the timing of that, so I look up the historical performance of S&P, Nasdaq & the Dow, tonight, I knew roughly, S&P had 20 yr cycles of going from bad to good then bad again & so on, After all that, I look up sectors in S&P then realize there’s possibility of 10 good yrs left in S&P right now going forward, At least I would think based on where the market is today & retail fairing better & the possibility of banks making a come back with in next yr or two. If so, Maybe the shortest bad cycle the S&P has ever had since after the depression? Based on that, I’m not leery about buying S&P index fund right now, but approx 10 yrs or so from now I’ll be at retirement age, so I don’t know if I will by then, be wanting to cashing out of my S&P index fund just before retirement or not, That is if I buy one with in next yr or two. Thanks, I’m just thinking out loud tonight.

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